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AIR is about as influential as RMS and they are fiercely competitive. RMS is not likely to be captive to anyone. They have sufficiently diverse models and knobs to turn on the models to allow reinsurers to pick and choose what suits them to back up what they want to write without conspiracy. All the reinsurers will use both models in any event.

Reinsurance underwriting spreads ARE actuarially high - and yet there remains insufficient capital and capacity to reinsure the peak risks in FLA and GOM - not because of conspiracy or greed but because like any insurer, they want , no, need, a diversified pool of risks. And rightly so, since who would want to reinsured by an undiversified and reasonably highly leveraged reinsurer? Answer: no one.

There is a market failure here, but the failure is that investors have short horizons, don;t understand cat risk, and fear negative fat-tails even if compensated for that tail risk. Go figure. Investor preference for skewed returns, coupled with extreme complexity of modeling and understanding the underlying primary portfolio risk, and a dollop of good old moral hazard keeps risk-capital in short supply. That's my two cents anyway...

by NihonCassandra (rusol1@yahoo.com) on Sun Oct 31st, 2010 at 09:35:16 PM EST

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